What cellular consumers don’t know can hurt them. In the United States and Canada, we’re taught that smartphone service costs an arm and a leg – and we need to sign contracts because cell phones are so pricey. That’s a bald-faced lie. Contracts actually increase the price of service by hundreds, or thousands, each year. A simple way to stop getting scammed is by buying an unlocked phone, like the Nexus 5 (check out our Nexus 5 reviewGoogle Nexus 5 Review and GiveawayGoogle Nexus 5 Review and GiveawayApproximately a year after Google released the Nexus 4, the company behind Android has come out with its successor -- the Nexus 5.Read More), and using prepaid cellular companies known as “MVNOs”.

What’s an MVNO?

The “V” in the initialism “MVNO” stands for virtual. They virtually operate networks by renting infrastructure. According to their contract with the carriers, MVNOs receive the exact same service as customers do. However, some exceptions do apply: Prioritization and roaming.

Prioritization

During periods of high usage, many cellular customers experience outages and call quality degradation. Some users suspected (perhaps rightfully) that MVNOs receive the lowest quality network bandwidth – the so-called “garbage” minutes that carriers don’t use during periods of peak activity.

According to many MVNOs, this isn’t true. On the other hand, some MVNOs such as (T-Mobile’s GoSmart) state in their fine-print that prioritization actually is a thing. Whether or not it’s true for all MVNO carriers remains a mystery.

Roaming

An advantage of using a contract carrier (or T-Mobile’s primary service) is that you receive data roaming. Roaming shares broadcast spectrum between each of the big carriers. A practice that makes a network appear larger than it actually is. One thing that MVNOs don’t provide is data roaming. The big cellular carriers actually rent out broadcast spectrum to each other, but charge each other for this service.

MVNOs operate on slim margins, and adding roaming would increase the rates that they charge. Fortunately, the vast majority of users don’t require data roaming. However, for those who travel frequently, and demand constant data access, roaming is a necessity.

How Can MVNOs Save You Money?

MVNOs save you money because you don’t sign a legally-binding contract to get service from them. They also save money because the MVNO marketplace is highly competitive.

Contracts

Think of it this way – signing a contract gives a cellular company legal control over you. Failing to make payment will result in penalties. If that deficit gets large enough, they shut off your service and eventually refer you to a collection agency that will harass you until your dying day. Now why would a company with that much control over you want to give you deal on your cellular bill?

Conclusion

MVNOs function as middlemen for wireless spectrum. They buy in bulk and sell to customers for far less than the big carriers. For example, an $80 to $100 plan from AT&T costs around $40 from an MVNO on the same network. On the downside, MVNOs don’t offer data roaming and some customers complain of prioritization, or call degradation at peak hours.

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Shawn R

December 7, 2013 at 2:02 pm

My wife and I were paying about $150 a month for Verizon phones. When our contracts ended we switched to Republic wireless. We bought the phones, then we pay $20 a month each for unlimited data, text, phone with free long distance. There's no contract, you can cancel at any time with no penalty, and they give a 30 trial period where you try the phone and service and send it back with no penalty if you don't like it. These are hybrid phones which means they run on Wifi when they can and default to the Sprint (3G & 4G) network when Wifi is not available. Republic just added a sweet new phone, the Motorola Moto X, and some new tiered pricing. I'm sticking with the old phone, the Motorola Defy X, because it does everything (internet, messaging, phone, camera) I want it to do.

Here in Chile, Virgin is a MVNO, i pay about $20 bucks for a 3g plan with 500mb (I don't use much data since i have wifi almost everywhere i move daily), but i have everything i need and i am not tied to a long term contract (And save a lot money in the meanwhile).

I always knew that US carrier are not as good as European (for an average few calls a day consumer, plus internet), but with the last few years of EU demonopolisation reguations and no change in the US the difference is becoming so big, it is hard to belive we live on the same planet. Good luck education more people, and getting this trypoly killed.

I have to say, after putting my wife's nexus 4 on t-mobile for $50/month, we cancelled after 7 days because reception inside any NYC building we were in for those 7 days was non-existent (outside, reception was fine though). I don't know how New Yorkers deal with t-mobile inside of buildings! Also finding out that taxes and fees were a whopping $16/month on a $50 plan was crazy.

I transferred her number to AIO Wireless (MVNO that uses ATT towers), and for $55/month flat fee, reception has been great everywhere we go.

In many countries the same big carriers provides both the postpaid (Contract ) as well as the prepaid cellular service. 90% of the mobile phones are not locked to any carrier and are not subsidized. Data roaming is possible at the normal rate for both types of subscribers. The downside: you do not get an i-Phone for $100

Thanks. I should add that my comment was limited to data roaming. Call-and-text roaming, IMHO, is still fairly important. I was recently out of the country for a few days, and wanted to be in touch with contacts at home. Sure enough, I did get a few text messages important enough to justify call-and-text roaming. SMS-on-roaming was cheap enough. I'm just happy I didn't get any voice calls, because the international charges would've been on my card.

Also forgot to mention that I have a prepaid SIM. Fortunately, my carrier (Globe Telecomms in the Philippines) has call-and-text roaming even on prepaid accounts

I'm trying to decide if data roaming is absolutely necessary, what with the proliferation of WiFi hotspots. And if you really need a data connection where you're traveling, you can always get what we call a “personal hotspot”, a little box which will take a SIM card and share the data connection via WiFi to your other device(s).

Kannon is a Tech Journalist (BA) with a background in international affairs (MA) with an emphasis on economic development and international trade. His passions are in China-sourced gadgets, information technologies (like RSS), and productivity tips and tricks.